Ladies and gentlemen, thank you for standing by. Welcome to Aurora Mobile First Quarter 2023 Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the call over to your host today, Christian Arnell. Thank you. Please go ahead, sir.

Thank you, operator. Hello, everyone, and thank you for joining us today. Aurora's earnings release was distributed earlier today and is available on the IR website at ir.jiguang.cn or through Newswire services. On the call today are Mr. Weidong Luo, Chairman and Chief Executive Officer; Mr. Shan-Nen Bong, Chief Financial Officer; and Mr. Guangyan Chen, General Manager. Following their prepared remarks, they will be available to answer your questions during the Q&A session that follows. Before we begin, I'd like to remind you that this conference call contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934 as amended and as defined in the U.S. Private Securities Litigation Reform Act of 1995. These forward-looking statements are based upon management's current expectations and current market and operating conditions, which are difficult to predict and may cause the Company's actual results, performance or achievements to differ materially from those in the forward-looking statements. Further information regarding these and other risks, uncertainties and/or factors are included in the Company's filings with the U.S. SEC. The Company does not undertake any obligation to update any forward-looking statement as a result of new information, future events or otherwise, except as required under applicable law. With that, I would now like to turn the conference over to Mr. Luo. Please go ahead.

Thanks, Christian. Good morning and good evening everyone. Welcome to Aurora Mobile's 2023 first quarter earnings call. Before I comment on our Q1 results, I would like to remind everyone that the quarterly earnings deck is available on our website. You may refer to the deck as we proceed with the call today. Despite a challenging macro environment, we successfully concluded the first quarter of 2023 with business and social activities slowly recovering during 2023 following a shift in COVID policy towards the end of 2022, some of our businesses were impacted to varying degrees. However, we are pleased to report that, so far in Q2, we have witnessed good momentum in revenue growth, especially from Developer Services. Although, the external macro environment was murky during the first quarter, we have not stopping making our organization more efficient. We carried on with our strict cost management strategy and cautious hirings, flattened our management structure, and as a result, our overall expenditures have continued to drop year-over-year and quarter-over-quarter. We believe these efforts will have us improve our financial performance in the long-run, which will also give us the space in a difficult environment to execute on our ambition. Here are some key financial results that I am proud to share. Lowest net loss since 2019 Q3 at RMB15.2 million, lowest adjusted operating expenses since IPO at RMB57.4 million, lowest operating expenses since IPO at RMB64.8 million, gross margin back to 70%, AR turnover days at 39 days, deferred revenue balance has been higher than RMB100 million for over 12 consecutive quarters. Total customer number remained stable at 4,527, up 1% year-over-year. Our effective cost optimization continue to earn noticeable financial results with the lowest net loss since 2019 Q3 at RMB15.2 million and adjusted operating expenses at historically low since…

Thanks, Chris. As Chris has mentioned before, we are facing external uncertainties during Q2, and our Vertical Application business was also challenged this quarter. Vertical Application mainly consist of Financial Risk Management and Market Intelligence. Vertical Application revenues decreased by 22% year-over-year. For both Financial Risk Management and Market Intelligence segments, revenues were negatively impacted and decreased by 20% and 5%, respectively, year-over-year to RMB11.8 million and RMB7.2 million. Our Q1 revenue was impacted since many of our customers were not able to close contract on a timely basis due to the COVID outbreaks. Going into Q2, we have seen recovery in the revenue from both sectors already. Under the challenging environment in Q1 of 2023, we were still able to set-up various KA customers, such as [indiscernible] and Vipshop, just to name a few. I will now go through some of our key expenses and balance sheet items. On to operating expenses. We are on track in our operational goal to becoming a more efficient company by centralizing our resources to focus on fewer, but more important tasks. During Q1, adjusted operating expenses marked another all-time low since IPO at RMB57.4 million. Our net loss has also narrowed down to RMB15.2 million, the lowest since Q3 of 2019. All three components within OpEx category recorded year-over-year and quarter-over-quarter reduction, in particular. R&D expenses decreased by 21% year-over-year to RMB31.7 million, mainly due to lower headcount that reduced salary costs and associated share-based compensation and a decrease in cloud cost and depreciation expenses as a result of improvement and optimization of our cloud platform. Selling and marketing expenses decreased by 28% year-over-year to RMB18.9 million, mainly due to the decrease in headcount by 31. G&A expenses decreased by 49% year-over-year to RMB14.3 million, mainly due to RMB8.4 million decrease in…

Thank you. [Operator Instructions] First question comes from the line of [Calvin Wong from Spica Capital]. Please go ahead.

Good evening, management. Thank you for taking my questions. I would like to have two questions, if I may. Two questions related to financials. First of all, about OpEx, we noticed that the Company continue to record historical low on your both GAAP and adjusted OpEx. Just wonder how did you do that? Did you make a further headcount reduction? If so, how will the reduced workforce impact on your business operations? And a related question is that, do you expect to see further reduction in OpEx in the coming quarters? How low could that go? So that's question related to OpEx. Another question is related to your revenue. We saw a dip in revenue year-on-year and quarter-on-quarter. Of course, management has already made a very good explanation on the reasons behind. So what we would like to know is, going forward, what will be the revenue growth drivers? So two questions, one on OpEx, the other on revenue.

Okay, thanks for the call. This is Shan-Nen. Let me try to answer your question. I guess, from financial perspective, we are very pleased to report that we did achieve the -- so-called the GAAP and non-GAAP adjusted OpEx on a low basis this quarter again. And as to how we do it, there are a couple of things that we have been doing well. First, our Going-Cloud project was executed successfully, which means that we are able to reduce significant amount of depreciation from the server expenses. This is very important. Besides the expenses aside, as you know, over the past few years, we have been spending like RMB10 million per year on servers, and with Going-Cloud project that we have done over the past year, we are no longer needing to spend such money. So for the servers that we're using right now, the cloud servers, and we are only pay as we go, which means that we only have to incurred expenses based on what we have consumed, and this also greatly improved our cash flow. And this is the first thing that we did. The second thing that we have done on the -- reducing the OpEx is that we have implemented the strict cost control-based management strategy over the past years, and probably you can see, over the years, we have reduced the headcount, we have also looked at every single expense that we have. And moving forward, we do not anticipate any further reduction or big reduction in our headcount, and we are pretty comfortable in terms of where we are in terms of headcount to continue our operation. And so this is the first question. And I think you asked about how low can the OpEx go going forward. I think the short…

Yes, very clear. Thank you.

[Operator Instructions] Our next question comes from the line of Brian Kinstlinger from AGP. Please go ahead.

Great. Thanks so much. Just doing a follow-up to the answer you just gave on the revenue drivers, you said overseas has gone from 3% of bookings to 10%. What products that you sell or services are most being bought by these overseas customers? Is it EngageLab or is it some of your other services?

Hi, Brian, this is Shan-Nen. Yes, those are 100% from EngageLab.

Great. So I guess, if I understand correctly, EngageLab is a product that's helping customers choose data storage locations. You own the networks or are these partners of yours? And then how are you acquiring customers for this product? That would be helpful. Thanks.

No. Brian, the EngageLab is the push notification that will help the customers in outside of China to do the notification, the messaging, so it's nothing to do with the storage, which means that a customer in, say, like Singapore, they have app, App, they would like to reach out to their customers or users in Southeast Asia. We help them to do the push notification in Singapore. This is exactly what we are doing since 2021 in China, just that we replicate the product overseas.

Okay. And then you said you expected a recovery in subscription services. What's driving this recovery in your view? I suspect the environment remains challenging.

Yes, I think there's a couple of things. One is, simply because the Q1 was low season, that's a given. And right now, what we are seeing is customers are -- again, people are trying to be more cost-efficient, they try to get the best view of their services, so they're more likely to outsource to us, which is the -- one of their best partners in terms of doing the push notification. So this is kind of like changing the mindset of rather for them to invest a lot of money, people, engineers to do it in-house, they are going outsourced to third-party like us. I guess, good numbers that I can share with you. Based on what we are seeing right now, in Q2, we have the April and May numbers in already, and based on this, the trajectory that we're looking at is the Developer Service subscription business, we expect to have double-digit growth in Q2 quarter-over-quarter. So you can see the numbers are looking good and people are buying our services.

Yes, and then value-added services really bottomed out you mentioned, and obviously, the advertising market is quite challenging. I don't think that's changing right now. So what's the outlook for that business? Can it decline further if the market remains weak or how do you manage that business right now?

Yes, based on what we are seeing, no, the value-added service remains to be fairly flat. We do not expect it to have good numbers going forward, at best try to be flat in the next quarter or so. Because if you look at what we have is we have researched some of the big -- bigger app player in China, such as those likes of Tencent, Baidu, and Weibo, all of them are recording quarter-over-quarter reduction in revenue for ad spending. So we are not any better. So I think the overall environment or overall ad market in China is remain weak or has not recovered to previous good times.

Okay. My last question is really a high-level question. You said customers have been challenged to close deals still given COVID. Help paint a picture or what the market is today. I mean, that was the first quarter, obviously, here we are two-thirds into the second quarter. Is COVID still a major challenge for you and what are the main obstacles in China enterprises are facing today?

No, as far as COVID is concerned, lack of a better word, I think it's almost all over. People are not shutting down or work from home because of COVID anymore, and there's no regulation or policy that workers must work from home or cannot come to work. So COVID, per se, is over. So what we are looking is -- right now is probably the recovery from the overhang of the COVID. Yes, COVID is over, that doesn't mean that the business operation is -- business activity is 100% back to where it was, but we do see recovery. As I said, the Developer Service subscription business, we have seen more double-digit growth quarter-over-quarter. So this is a very encouraging sign.

Okay. Thanks so much.

Thank you.

Thank you for the questions. [Operator Instructions] At this time now, no further questions on the line. I'd like to hand the call back to Christian for closing remarks.

Thank you, everyone, for joining the call tonight. If you have any further questions or comments, please don't hesitate to reach out to myself or anyone on the Aurora Mobile IR team. This concludes the call. Thank you, and have a good evening.

This concludes today's conference call. Thank you for participating. You may now disconnect.